Financial and other information for Battle Laptops

Battle Laptops

Data for the year ended 30 September 2020

Production (units) 23,800 Total

000

Direct variable costs

Material 40,650

Labour 3,879

Packaging and transport 2,118

Subtotal 46,647

Overhead costs

Customer service 7,735

Purchasing and receiving 2,451

Inventory management 1,467

Administration of production 2,537

Subtotal 14,190

Total 60,837

Other information relating to the overhead activities

Labour time per unit 3 hours

Total minutes on calls to customer 899,600

Total purchase orders raised 21,400

Total components used in production 618,800

Special order

An order has been received from an important client which may lead to more business in the future if successful. The following information relates to that order.

Units ordered 16

Direct costs for this order:

Material 27,328

Labour 2,608

Packaging and transport 1,424

Other activities relating to this order:

No of minutes on calls to customer 1,104

No of purchase orders raised 64

No of components used in production 512

Administration of production (absorbed as general overhead) 3 Labour hrs per unit

Required:

The CEO has asked you to provide a report which addresses the following issues:

(a) An evaluation of the current method of costing against an Activity Based Costing (ABC) system. You should provide illustrative calculations using the information provided on costs for 2020 and the special order.

(b) What action management might take in the light of your results with respect to this order

(c)The application of Activity Based Management (ABM) requires that management focus on each of the following:

Operational ABM;

Strategic ABM;

The implicit value of an activity.

Critically appraise the potential introduction of ABM at BCL, including how it relates to each of the three areas listed above,

(d) BCL also manufactures and sells accessories for the laptops, such as protective covers and the most recent financial information for this division is outlined below:

Costs

Direct Material 35,000 42,000

Administration 8,800 8,800

Factory Overhead 59,000 65,000

Production Labour 38,000 43,000

Selling and Distribution 20,000 34,000

Activity Units Units

Production 10,000 12,000

Sales 5,000 8,500

Prepare a table summarising the variable cost per unit and total fixed cost for each of the five cost headings above.

(e) Finally, the CEO is aware of the terms Financial Accounting and Management Accounting but is unsure of the difference between the two and would like you to outline the main differences as they would relate to BCL